West Virginia Loses in Tiff with Insurance Companies
CHARLESTON, W.Va. (AP) _ Just two months after adopting one of the nation’s toughest liability insurance laws, West Virginia has backed down in the face of what state leaders called ″industry blackmail″ - mass policy cancellations for doctors, hospitals, lawyers and government officials.
″It seemed that they (the insurance companies) took the smallest, weakest state they could find to flex their muscle,″ said Craig McDonald, a spokesman for Public Citizen. The Washington organization, affiliated with Ralph Nader, has been challenging the insurance industry’s demands for reform of state laws on malpractice lawsuits - so-called tort reform.
″West Virginia is not alone,″ McDonald said. ″The insurance industry is playing some pretty hardball politics in tort reform in several states. But nowhere else has it escalated to such a critical situation.″
Within weeks of the West Virginia law’s passage on March 8, the final day of the regular legislative session, five major insurance companies announced they would cancel thousands of policies by May 31 if the law was not changed.
In fact, the Legislature in special session last week voted to modify the law, and Gov. Arch Moore has indicated he will sign it reluctantly.
At least 6,400 doctors, 34 hospitals and an assortment of banks, accountants, architects and lawyers received letters similar to the one sent to Edward Skriner, president of First Banc Securities of Morgantown, who was told that insurance on his bank’s officers and directors would be canceled.
″The termination of your coverage (on May 31) is the direct result of West Virginia Law SB714, which effectively prevents us from operating our business as was intended under the free enterprise system,″ said the letter to Skriner from Continental National American of Chicago, an insurance conglomerate that owns three of the five companies that threatened cancellations.
″If that isn’t blackmail, you tell me what is,″ said state Sen. Gerald Ash.
The insurance companies said the strict financial reporting requirements originally imposed by the state would have mandated an overhaul of their accounting systems. They also objected to the law’s limits on their rights to cancel insurance policies.
The state attorney general’s office sued the companies that threatened to cancel their policies, claiming they were violating antitrust laws. However, while the deadline loomer closer, the case bogged down in the courts.
Earlier this month, the Legislature went into special session to consider rolling back the original law. Gov. Arch Moore wanted lawmakers to consider an alternative state-run insurance program, dismissing the Legislature’s approach as a ″Band-Aid.″
But legislative leaders said the May 31 deadline did not allow them enough time to deal with such a complicated proposal as state-run insurance. House Judiciary Chairman Chuck Chambers said the industry had ″a gun to our heads.″
In the end, the Legislature approved the revised law. Moore said he had no choice but to sign the rollback bill, to ensure continued insurance coverage in West Virginia.
The original law the Legislature adopted limited malpractice awards for ″pain and suffering″ to $1 million and reduced the time in which such suits had to be filed. But the law also limited the companies’ right, in some cases, to cancel policies.
Doctors liked the new law. Lawyers said they could live with it. But the insurance industry threatened to leave the state altogether.
West Virginia was the first state to adopt legislation that imposed limits on the industry in exchange for limits on the public’s right to sue, according to Public Citizen’s McDonald.
However, because other states were considering similar proposals, McDonald said he believed insurers wanted to make an example of West Virginia.
Insurers blame skyrocketing premiums on high damage awards in liability cases. ″Society does not want to assume risk anymore,″ said Richard Early, an Aetna Casualty and Surety Co. vice president.
But while they have joined doctors in actively seeking limits on damage awards, insurers so far have been unwilling to promise lower rates in return.
In Georgia, according to McDonald, the insurance industry helped kill a bill that called for rate reductions of 25 percent to accompany limits on malpractice suits. In Florida, he said, a bill is pending that demands a rate rollback to Jan. 1, 1984, unless the insurance companies prove through detailed loss data that higher rates are justified.
″But nowhere other than West Virginia has there been legislation actually passed that limits the industry,″ McDonald said.
Had the tort reform law stood as it was first adopted, insurance companies would have had to report their profits and losses for individual cases they handled. Now they will be allowed to report only overall numbers. In addition, there will be less delay time for insurance rate hikes and fewer restrictions on cancellations.
″What’s being done to resolve the crisis has ... been a total capitulation on the part of the state,″ Moore said. ″It takes us back to square one.″
The insurance companies apparently are satisfied. In a hearing on the attorney general’s lawsuit, company lawyers said that the changes made by the Legislature would mean that policies would be continued.
Spokesmen for CNA said its concern was that the tough cancellation restrictions would have made it almost impossible to unload high-risk policy holders.
But John W. Wilson, an insurance consultant hired by the state, said the companies’ profits and losses in West Virginia were never the real issue. He called the ″liability crisis″ bogus but said that CNA and other companies used West Virginia to intimidate other states.
″They do that here, and they make political strides in other states as well,″ he said.